Alchanati Campbell & Associates
Just like hype and FOMO in luxurious retail and adventurous vacations (two examples), there is hype and FOMO in investing. It’s the newest factor to be used when evaluating market risk. The amount of retail investors joining the market has been “unprecedented”. Below is an example of the swarm.
One reason for this is consumers are using their stimulus checks and unemployment benefits to either save or invest. Below shows both scenarios.
These are due to consumer spending going down and personal “income” going up.
The issue of financial illiteracy looks like it’s being resolved (maybe) and finally the ownership of stock is not only in the top 10%’s hands, but there are many consequences and risks of this.
We have added to our list of risks. If any of these risks become extreme enough, we believe that we can see another correction in the market. We still hold the view that we are in a recession, and as history has shown, there is extreme volatility and movements in both directions. (Testing and retesting the highs and lows).
QE. Quantitate Easing is a modern monetary tool used by the federal reserve as a backstop for the economy. It was first used in the United States during the 08 financial crisis by Ben Bernanke. QE is the process of purchasing government bonds and other financial assets in order to inject capital into the economy, for the purpose of stimulating the economy and encouraging consumption. QE is usually only implemented once fed rates reach near the 0% mark as a final effort. This process usually increases inflation and can help pull the economy out of a recession. More importantly, the real affects this has on our economy has to do with increasing liquidity, increase in risky asset prices, currency depreciation, and signaling. The most important of these is the signaling effect, or as some call it the fed put. This is a psychological impact which is derived from the thought that the fed will take extraordinary steps to keep the market and economy afloat. Most market movements occur directly after the announcement of QE, with the actual QE taking place weeks/months after the announcement. This delay is due to government inefficiencies (time it takes to announce vs the time it actually takes to act).
The ACA Foundation
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.